LNG to overtake iron ore as main driver of Australia’s exports

By JAMES PATON
Bloomberg

Liquefied natural gas (LNG) will overtake iron ore as the main driver of Australia’s exports with annual shipments surging to more than A$50 billion ($37 billion) by 2020, according to Australia & New Zealand Banking Group.

The contribution of LNG to Australia’s economic growth will surpass iron ore next year and peak at 0.75 percentage points in 2017, the bank wrote in a report released on Thursday. Iron ore will still dominate export revenues at about A$60 billion by 2020, according to the bank.

“There are a number of benefits for Australia,” Felicity Emmett, co-head of Australian economics at the bank, told reporters Thursday. “But it’s not all good news.”

Investment in LNG is falling sharply after a boom in spending, and the number of workers needed will drop significantly as projects move into production, she said.

Foreign ownership rates are at about 90%, so much of the profits will flow overseas, she said.

Australia, expected to challenge Qatar as the world’s biggest supplier of the super-cooled natural gas by 2018, is getting a boost from LNG even as falling energy prices threaten to erode the industry’s returns. Chevron and Royal Dutch Shell are among companies developing Australian projects to tap Asian demand.

LNG prices could fall as low as $7/MMBtu over the next six months due to weaker demand in Japan and South Korea before stabilizing in a range of about $8 to $10, said Daniel Hynes, senior commodity strategist at ANZ.

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